Covalence Specialty Materials Reports Fiscal 2007 First Quarter Results
BEDMINSTER, N.J., March 12 -- Covalence Specialty
Materials Corp. ("Covalence" or the "Company") today announced results for
its first fiscal quarter ended December 29, 2006.
The Company reported net revenue for the three months ended December
29, 2006 of $366.7 million and a net loss for the same period of $21.8
million. After giving effect to the Acquisition Transaction (as defined
below), Adjusted EBITDA (as defined below under "Non-GAAP Financial
Measures") for the first fiscal quarter of 2007 was $8.4 million.
Management believes that presenting this non-GAAP measure is important for
investors to better understand the Company's underlying operational and
financial performance, to facilitate comparison of results between periods
and to monitor the Company's compliance with certain financial covenants in
its credit facilities.
"Our first fiscal quarter Adjusted EBITDA was consistent with our
previous guidance. As noted during our earnings call in December 2006, a
soft polyethylene resin market, a mild 2006 hurricane season and continued
efforts by customers to structurally reduce inventories together with
increases in certain non-resin raw materials, freight and other conversion
costs, resulted in a very challenging environment," said Kip Smith,
President and Chief Executive Officer. "We continue to work to improve
volume and profitability in all of our businesses and have already seen
significant volume improvement in January and February 2007. Actions taken
during the quarter including extended holiday plant shutdowns, aggressive
inventory management and business process changes position us for
meaningful improvement in the second fiscal quarter."
Merger with Berry Plastics Group, Inc.
As previously announced, the Company's parent company, Covalence
Specialty Materials Holding Corp., ("Holdings") has agreed to merge with
Berry Plastics Group, Inc., ("Berry") in a stock-for-stock merger. The
resulting company will retain the name Berry Plastics Group, Inc. ("New
Berry"). Berry shareholders will own a majority of the combined company's
common stock following the merger. The merger has been approved by written
consent of a majority of each company's stockholders, and remains subject
to customary closing conditions, including receipt of required regulatory
approvals. Immediately following the merger, the Company and Berry Plastics
Holding Corporation ("Berry Opco") will be combined as a direct subsidiary
of New Berry (the resulting company referred to as "New Berry Opco").
Pursuant to a supplemental indenture, New Berry Opco will become the
successor obligor of the Company's senior subordinated notes. The Company's
senior secured credit facilities (both first and second lien facilities)
are expected to be replaced with a new asset based revolver and new senior
secured term loan. The Company currently expects the closing to occur in
April 2007.
Results of Operations - First Fiscal Quarter Ended December 29, 2006
Net revenue for the three months ended December 29, 2006 was $366.7
million, a decrease of $83.5 million, or 19%, compared to $450.2 million in
the first quarter of fiscal 2006. Net revenue for the three months ended
December 29, 2006 was impacted by lower volumes driven by a mild 2006
hurricane season, weak housing starts and continued efforts by customers to
minimize inventories during a period of softening polyethylene resin
pricing.
Gross profit for the three months ended December 29, 2006 was $24.2
million, a decrease of $40.5 million compared to $64.7 million in the first
quarter of fiscal 2006. Gross profit was negatively impacted by lower sales
volumes and one-time charges in our Plastics operating segment due to lower
production and the correction of finished goods inventory levels. In
addition, gross profit was also reduced by a $3.5 million increase in
depreciation resulting from the purchase method of accounting attributable
to the Acquisition Transaction. Excluding the purchase accounting
adjustments and one-time charges in our Plastics operating segment
described above, gross profit for the three months ended December 29, 2006
would have been $29.6 million.
Selling, general and administrative expenses for the three months ended
December 29, 2006 were $41.8 million, an increase of $8.3 million compared
to $33.5 million in the first quarter of fiscal 2006. The increase was
mainly the result of $8.6 million of additional depreciation and
amortization expense from the purchase method of accounting attributable to
the Acquisition Transaction. The increase was also attributable to an
investment in corporate services for future growth, severance costs and
general inflation.
Operating loss for the three months ended December 29, 2006 was $17.8
million, a decrease of $38.9 million compared to an operating profit of
$21.1 million in the first quarter of fiscal 2006. The decrease was
primarily driven by the factors described above. This decrease was
partially offset by the elimination of charges and allocations from Tyco.
Excluding the purchase accounting adjustments, one-time charges in our
Plastics operating segment and severance costs described above, operating
loss for the three months ended December 29, 2006 would have been $2.2
million.
The Acquisition Transaction
Affiliates of Apollo and senior management of the Company completed
their acquisition of substantially all of the assets and liabilities of the
Company from Tyco on February 16, 2006 (the "Acquisition Transaction").
Non-GAAP Financial Measures
In addition to disclosing financial results that are determined in
accordance with GAAP, Covalence discloses Segment EBITDA and Adjusted
EBITDA, all of which are non-GAAP measures. You should not consider Segment
EBITDA or Adjusted EBITDA as an alternative to operating or net income,
determined in accordance with GAAP, as an indicator of Covalence's
operating performance, or as an alternative to cash flows from operating
activities, determined in accordance with GAAP, as an indicator of cash
flows, or as a measure of liquidity.
Segment EBITDA is calculated by the sum of earnings before interest,
taxes, historical charges from Tyco, restructuring and impairment charges,
minority interest and depreciation and amortization. Segment EBITDA is
commonly used in the financial community, and Covalence presents Segment
EBITDA to enhance your understanding of its operating performance.
Covalence uses Segment EBITDA as one criterion for evaluating its
performance relative to that of its peers. Covalence believes that Segment
EBITDA is an operating performance measure, and not a liquidity measure,
that provides investors and analysts with a measure of operating results
unaffected by differences in capital structures, capital investment cycles
and ages of related assets among otherwise comparable companies. However,
Segment EBITDA is not a measurement of financial performance under
accounting principles generally accepted in the United States, and
Covalence's Segment EBITDA may not be comparable to similarly titled
measures of other companies.
The Company's credit facilities have certain covenants that use ratios
utilizing a measure referred to as Adjusted EBITDA ("Adjusted EBITDA"). The
supplementary adjustments to Segment EBITDA to derive Adjusted EBITDA may
not be in accordance with current SEC practices or the rules and
regulations adopted by the SEC that apply to periodic reports filed under
the Securities Exchange Act of 1934. Accordingly, the SEC may require that
Adjusted EBITDA be presented differently in filings made with the SEC than
as presented in this release, or not be presented at all.
The most directly comparable GAAP measure to Segment EBITDA and
Adjusted EBITDA is net income (loss). Included in this release are a
reconciliation of net income (loss) to Segment EBITDA and a reconciliation
of Segment EBITDA to Adjusted EBITDA.
About Covalence
Covalence, with a workforce of approximately 7,000 people in 37
manufacturing facilities, is a major producer of a wide range of products,
including polyethylene-based films, industrial tapes, medical specialties,
packaging, heat-shrinkable coatings and specialty laminates. Covalence is
the number one producer domestically of trash bags, duct tape and niche
laminated and coated products. Among its leading brands are Ruffies(R) and
Rhino-X(R) trash bags; Film-Gard(R) plastic sheeting; Nashua(R) tapes;
Covalence Raychem(R) heat-shrinkable coatings (Raychem(R) is a trademark of
Tyco Electronics Corporation and Nashua(R) is a trademark of Nashua
Corporation; each are used under license by Covalence); Polyken(R) pipeline
coatings; Thermo-ply(R) and Energy-Brace(R) wall sheathing; as well as
R-Wrap(R) and Barricade(R) housewraps. For more information, please visit
http://www.covcorp.com.
Investor Relations Contact:
David S. Graziosi
Executive Vice President and Chief Financial Officer
908-547-6071
This press release contains certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995)
relating to Covalence that are based on the beliefs of Covalence's
management. When used in this press release, the words "may," "will,"
"should," "expect," "intend," "estimate," "anticipate," "believe,"
"predict," "potential" or "continue" or similar expressions identify
forward-looking statements. Such statements reflect the current views of
Covalence's management with respect to the Company's operations and results
of operations regarding the plastic film industry, economy, interest rates,
availability of consumer credit, employment trends, levels of consumer
confidence, consumer preferences, raw material costs and availability,
industry acceptance of price increases, national and regional trends, level
of competition within its industry, availability of alternative plastics
film products, its level of indebtedness, costs of environmental
compliance, increase in capital expenditure requirements, shifts in
industry demand, and general economic conditions. These statements are
subject to certain risks and uncertainties. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as expected, intended, estimated, anticipated, believed or
predicted.
COVALENCE SPECIALTY MATERIALS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, In Millions)
Three Months Ended
Dec. 30, Dec. 29,
2005 2006
Net revenue $450.2 $366.7
Cost of goods sold 385.5 342.5
Gross profit 64.7 24.2
Charges and allocations from Tyco 10.1 -
Selling, general and administrative
expenses 33.5 41.8
Restructuring and impairment
charges (credits), net - 0.2
Operating income (loss) 21.1 (17.8)
Other expense - 0.1
Interest expense, net 1.1 17.0
Interest expense, net - Tyco 2.9 -
Income (loss) before income tax expense 17.1 (34.9)
Income tax expense (benefit) 0.7 (13.1)
Net income (loss) $16.4 $(21.8)
COVALENCE SPECIALTY MATERIALS CORP.
RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA (*)
(Unaudited, In Millions)
Three Months Ended
Dec. 30, Dec. 29,
2005 2006
Net income (loss) $16.4 $(21.8)
Add:
Depreciation and amortization 10.3 20.3
Income tax expense (benefit) 0.7 (13.1)
Interest expense, net 4.0 17.1
Tyco charges 10.1 -
Restructuring and impairment
charges (credits), net - 0.2
Segment EBITDA $41.5 $2.7
(*) Segment EBITDA is a non-GAAP financial measure. For more
information regarding Segment EBITDA and non-GAAP financial measures,
generally, see "Non- GAAP Financial Measures."
RECONCILIATION OF SEGMENT EBITDA TO ADJUSTED EBITDA (*)
(Unaudited, In Millions)
Three Months Ended
Dec. 30, Dec. 29,
2005 2006
Segment EBITDA $41.5 $2.7
Add:
Estimated stand-alone costs (1.9) -
Discontinued Operations 0.2 0.1
Non-recurring severance and
non-cash equity based
compensation 1.6 1.7
Monitoring fee - 0.6
Non-recurring incentives - 1.1
Non-inventoried manufacturing costs - 1.9
Transition and Other, net 1.8 0.3
Adjusted EBITDA $43.2 $8.4
(*) Each of Segment EBITDA and Adjusted EBITDA is a non-GAAP financial
measure. For more information regarding Segment EBITDA, Adjusted EBITDA and
non-GAAP financial measures, generally, see "Non-GAAP Financial Measures."
COVALENCE SPECIALTY MATERIALS CORP.
SELECTED BALANCE SHEET DATA
(Unaudited, In Millions)
As of
December 29, 2006
Cash & Cash Equivalents $54.1
Accounts Receivable, net 146.7
Inventory 191.6
Accounts Payable 122.7
Accrued Liabilities 47.9
Total Debt 738.5
Contact:
David Graziosi
Chief Financial Officer of Covalence Specialty Materials Corp.
+1 (609) 720-5442
|
